What will the Autumn Statement bring?

Chancellor Jeremy Hunt has warned of the need to make difficult decisions in the upcoming Autumn Statement. The Chancellor's choices are being restricted by the state of the public finances. However, that isn't preventing business groups from asking for action and Conservative MPs from asking for tax cuts. Here we examine some of the options open to Mr Hunt on 22 November.

State borrowing billions over predictions

The Chancellor's warning came after recent news that there has been a 'sharp worsening' of the public finances over the past six months.

Mr Hunt said state borrowing was on course to be £20 billion to £30 billion higher than predicted at the March Budget.

The Chancellor said: 'The fiscal position has worsened since the spring, and I will have to take difficult decisions in the Autumn Statement.

'The main reason things are more challenging is because interest rate projections for all economies have gone up. The UK is not immune to those changes. We are likely to see an increase in debt interest payments of £20 billion to £30 billion and that's a huge challenge.'

At the time of the March Budget, the Office for Budget Responsibility (OBR) said the chancellor had only a £6.5 billion buffer to meet his fiscal rule of having debt as a share of national income falling at the end of five years. Higher borrowing in response to the Covid-19 pandemic has pushed the national debt above £2 trillion.

No short cuts

The government is now expecting the OBR to cut its future growth forecasts for the UK economy, which would pile additional pressure on the public finances.

However, Mr Hunt says he is not prepared to borrow more to finance the tax cuts being demanded by some Conservative MPs. Instead he says he will make savings to pave the way for a more generous Budget next spring as the next general election draws closer.

The Chancellor said: 'I will do everything I can to prevent tax rises and also show how I can reduce the tax burden over time. But I have to be honest – there are no short cuts. Borrowing to finance tax cuts is no tax cut at all. It just passes on the cost to a future generation.

'All western economies have found themselves in a low-growth trap. The Autumn Statement will show how we can get out of it.'

General Election ahead

The Autumn Statement comes with the UK still battling inflation and looking at an uncertain economic forecast. It also comes as the run up to the next General Election is firmly underway.

The Chancellor would no doubt like to go into that election with inflation falling, the economy growing and the ability to make voters feel good with some tax cuts. He also faces pressure from within his own party to cut taxes.

The former PM Liz Truss is planning to release what her allies call a 'Growth Budget' ahead of his Autumn Statement.

Meanwhile, a long campaign by some Conservative MPs to cut inheritance tax is under serious consideration in Downing Street, according to newspaper reports.

Among the proposals under consideration is to reduce the 40% rate paving the way to abolish it in future years. However, this appears more likely to happen in next March's Budget rather than this autumn.

Unleash green markets

Meanwhile, the UK's business groups are also making their pitches for the Autumn Statement.

The Confederation of British Industry (CBI) has urged Chancellor Jeremy Hunt to 'unleash green markets' to drive long-term prosperity and sustainable growth.

One of the CBI's key proposals is for the government to realise the UK's net zero growth opportunity. It has urged the Chancellor to decrease waiting times to build electricity transmission infrastructure and speed up the process for becoming connected to the grid.

The business group also advocates introducing a targeted 'green' super-deduction for incorporated and unincorporated businesses, with a first-year allowance of at least 120%.

Making full expensing permanent to unlock investment

The CBI is also urging the Chancellor to make full expensing permanent to 'unlock business investment across the economy'. Analysis carried out by the CBI showed that permanent full expensing could help to drive investment by 21% and increase GDP by 2% by 2030/31.

Five key changes

In addition, the Institute of Directors (IoD) has written to the Chancellor Jeremy Hunt with five key policy recommendations for the Autumn Statement.

• Tax credits for companies that train staff to meet national skill shortages.
• Stronger incentives for SME net zero transition – such as a differential corporation tax rate.
• Permanent 100% capital expensing.
• An export target based on volumes, not values, and the proportion of companies that export.
• Greater reputational pressure on slow invoice payers.